The municipal market was weaker yesterday by as much as eight to 10 basis points, as problems with the auction-rate securities sector continue to push yields higher.

"The muni market keeps deteriorating and deteriorating," a trader in New York said. "It's been hard to find buyers. Everyone is sitting on their hands. It's a real tough market."

Nevertheless, the Treasury market showed some mild gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.86%, finished at 3.84%. The yield on the two-year note was quoted near the end of the session at 1.98%, after opening at 2.01%.

"Munis continue to under perform," said Evan Rourke, portfolio manager at MD Sass. "What we're seeing is continued de-leveraging of arb accounts, we're seeing the traditional buyers absent from the market because they're focused on auction-rate securities, where they can still pick up yields that are attractive relative to the fixed-rate side. So you've got plenty of sellers and not a lot of buyers, and there you go."

Federal Reserve Board chairman Ben Bernanke's prepared semi-annual congressional testimony says the economic situation "has become distinctly less favorable" since summer, blames "the continuing contraction of the U.S. housing market," and makes clear he favors Fed easing as the remedy.

In economic data released yesterday, durable goods orders dipped 5.3% in January, after a revised 4.4% increase the previous month. Additionally, durable goods orders excluding transportation declined 1.6% in January, after a revised 2.0% uptick the prior month. Economists polled by IFR Markets had predicted a 3.5% drop in durable goods and a 0.7% decrease in durable goods excluding transportation.

Also, sales of new single-family homes dropped 2.8% to a 588,000 seasonally adjusted annual rate in January. The January figure came after an upwardly revised 605,000 rate in December, a 4.0% drop, originally reported as a 4.7% decrease to 604,000. IFR Markets' poll of economists had predicted a 600,000 sales level for January.

Later this week, some significant economic data will be released. Today, initial jobless claims for the week ended Feb. 23 and continuing jobless claims for the week ended Feb. 16 will be released, along with the preliminary fourth quarter gross domestic product. Also, January personal income, January personal consumption, the January core personal consumption expenditures deflator, the Chicago purchasing managers index for February, and the final February University of Michigan consumer sentiment will be released tomorrow.

Economists polled by IFR Markets are predicting a 0.7% increase in GDP, 350,000 initial jobless claims, 2.800 million continuing jobless claims, 0.2% growth in personal income, a 0.2% uptick in personal consumption, 2.2% rise to the core PCE deflator, a 50.0 Chicago PMI reading, and a 70.0 level for the Michigan sentiment index.

In the new-issue market yesterday, Maryland competitively sold $400 million of general obligation bonds to Merrill Lynch & Co. with a true interest cost of 4.14%. The bonds mature from 2011 through 2023, with yields ranging from 2.98% with a 5% coupon in 2012 to 4.00% priced at par in 2018. Bonds maturing in 2010 and from 2019 through 2022 were not formally re-offered. The bonds, which are rated triple-A by all three major ratings agencies, are callable at par in 2016.

Lehman Brothers priced $176.6 million of state personal income tax revenue bonds for the Dormitory Authority of the State of New York in two series. Bonds from the larger series, $107.3 million of bonds for economic development and housing mature from 2008 through 2017, with yields ranging from 2.47% with a 3.5% coupon in 2009 to 3.95% with a 5% coupon in 2017. Bonds maturing in 2008 were not formally re-offered. Bonds from this series are not callable.

Bonds from the smaller series, $69.4 million of bonds for health care, mature from 2009 through 2018, with term bonds in 2023, 2028, 2033, and 2037. Yields range from 2.22% with a 4% coupon in 2009 to 5.06% with a 5% coupon in 2037. Bonds from this series are callable at par in 2018. The credit is rated AAA by Standard & Poor's and AA-minus by Fitch Ratings.

Morgan Stanley priced $150 million of pollution control revenue refunding bonds for the Delaware County, Pa., Industrial Development Financing Authority. The bonds mature in 2012, yielding 4.00%, priced at par. The bonds are not callable, and are rated A2 by Moody's Investors Service and A by both Standard & Poor's and Fitch.

Citi priced $111.7 million of certificates of participation for Iredell County, N.C. The bonds mature from 2010 through 2024, with term bonds in 2027 and 2028. Yields range from 3.06% with a 4% coupon in 2010 to 5.17% with a 5% coupon in 2028. The bonds, which are insured by Financial Security Assurance Inc., are callable at par in 2018. The underlying credit is rated A1 by Moody's and AA-minus by Standard & Poor's.

Morgan Stanley priced $110.1 million of general receipts bonds for Ohio's University of Akron. The bonds mature from 2011 through 2020, and from 2023 through 2027, with a term bond in 2038. Yields range from 2.91% with a 3.75% coupon in 2011 to 5.20% with a 5% coupon in 2038. Bonds maturing from 2011 through 2023 are insured by Assured Guaranty Corp. Bonds maturing from 2024 through 2038 are insured by FSA. The underlying credit is rated A2 by Moody's. The bonds are callable at par in 2018.

Glendale, Ariz., competitively sold $65.5 million of subordinate-lien water and sewer revenue obligations to Piper Jaffray & Co., with a TIC of 4.55%. The bonds mature from 2009 through 2028, with yields ranging from 2.35% with a 3% coupon in 2009 to 4.81% with a 5% coupon in 2025. Bonds maturing in 2013, 2023, 2024, and from 2026 through 2028 were not formally re-offered. The bonds, which are callable at par in 2018, are insured by FSA. The underlying credit is rated A1 by Moody's and AA by Standard & Poor's.

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